The Ultima Income Generator Guide to Selling Options Part 6

This is the sixth and final installment to the Ultima Income Generator. While this doesn't represent a complete description of all of the elements to the strategy and hedges, our members have access to a 5-hour class with slides, and multiple 3-hour classes on hedges.

Since we have progressed through the back-drop of strike and expiration selection, the rationale, and exit rules, it's now time to talk about products. The term 'product' may not be familiar to you in terms of trading, but it's just the underlying instrument you plan to trade.

Ultima Product Selection

While this quantitative approach to selling emphasizes the positives and minimizes the negatives, the product you trade is extremely important. That means that you’ll need to stick with Index products or the most liquid S&P 100 stocks. When considering index products, you can choose between index ETFs of futures options. For futures options, Don sticks with options on S&P 500 E-mini futures (ES) and Micro E-mini S&P 500 Index futures.

We generally start people out on Micro E-mini S&P 500 Index futures (MES). This is a liquid product with a low contract value. That means that a trader can execute the Ultima strategy with as little at $2000. As your account size grows north of $200,000 you can apply for portfolio margin and expand into index ETFs, E-mini S&P 500 index futures, stocks and even Treasury futures options.

Check 30-Day Implied Volatility

Liquidity an extremely important criteria for Ultima. However, there is another criteria when you're considering individual stocks for Ultima trading. That criteria is 30-day implied volatility.

For Ultima, we want 30-day implied volatility to be less than 90%. That's not extraordinarily difficult as most S&P 100 stocks that you look at will fit that criteria. That means there are additional concerns if there implied volatility is higher than that. Luckily, it's an easy thing to check. Below is an example using TD Ameritrade's thinkorswim platform.

Conclusion

The Ultima Income Generator is a quantitative and revolutionary approach to high probability trading. It represents an approach that attempts to minimize the risk of selling, while maximizing returns. The incorporation of hedging techniques helps take the edge off selling events and helps to smooth out your profitability. Obviously, there are more details that are covered in our 5-hour class and other related classes on hedges, but I hope this gave you a proper introduction.

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